Japan Spends Record Yen to Defend Currency

Japanese authorities deployed a record 15.4 trillion yen ($96.5 billion) in foreign exchange markets between July 30 and August 26 to bolster the weakening yen. This intervention reflects Tokyo's strong resolve to prevent further depreciation of its currency, which has reached four-decade lows.

The yen's weakness negatively affects Japan's major exporters by reducing their overseas profits and drives up the cost of essential imports, particularly energy. The Bank of Japan's slower policy tightening compared to other markets has kept Japanese interest rates low, making the yen an attractive funding currency for global trades.

Data indicates that the intervention, including rare joint action with the U.S. on July 30 and July 31, aimed to pull the yen from its lowest points against the dollar in 40 years. Following these actions, the yen briefly strengthened from around 163 per dollar to 155.20 by August 3, before settling around 159.50.

To reinforce Japan's capacity for large-scale market operations, the U.S. has affirmed its support, suggesting Tokyo could utilize a COVID-era Federal Reserve backstop. This facility allows Japan to access dollar liquidity without selling U.S. Treasuries, signaling strong international cooperation in stabilizing the yen.